The Struggle For Millennials With Personal Finance

Research indicates that those from the millennial generation aren’t as financially literate as those from previous generations. They are however more likely to use the latest financial technology.

The millennial generation is perhaps most famous for being technological. By 2025, the workforce will be made up primarily (75%) of millennials. The issue is that the millennial generation is showing signs of struggling to understand the most basic financial language. Could it be the job of accountants to aid them in understanding finances and in turn manage them more effectively.

“Only 8% of millennials demonstrate high financial literacy”

Lack of understanding the basics of finance

Just 24% of millennials
demonstrate basic financial knowledge. Even some of the most basic terms
surrounding personal finance were a mystery to those involved in studies.
However, adults didn’t perform much better with 50% getting all answers
correct. Millennials scored 44%.

In a study
that asked millennials about aspects of finance including: ISAs, bonds,
shorting, hedge funds, index tracker funds and derivatives, half of those
questioned couldn’t explain one of them. In students this figure rose to 60%. Almost
85% couldn’t explain equity, and 90% were unable to define asset management.

“34% of millennials are very unsatisfied with their currently financial situation”

It’s not uncommon
knowledge that millennials struggle to save money in today’s climate. Even
those with savings couldn’t give much information on them. Over half of millennials
in the study with savings (£10-24,999k) couldn’t tell the interviewer what an
ISA was.

Millennials and spending

Debt is
just one factor in millennials struggling to save money. Long-term saving is
just less important to most millennials than what shorter-term goals are. Millennials
are typically more likely to spend more money on experiential things such as
long holidays and ‘big trips’.

Impulse
buys and indulgent spending are more important to millennials than what they
are to previous generations. Most will prioritise this over saving money for
the future. Another generational factor that crops up during research is spending
money on eating out and other lifestyle centred activities.

“87% of millennials say that they’d still splurge on an expensive dining experience if money was tight”

Millennials and financial
technology

Whilst
there’s clearly a large financial literacy gap, Visa
highlights that over half of British millennials use their mobile banking apps
on a regular basis. Where transfers are concerned, 59% make transfers digitally
to family and friends.

According
to the Global Financial Literacy Excellence Center, the majority (80%) of
millennials use their mobiles to manage their transactions, sending payments
and tracking what they spend. There’s no evidence to suggest that the 90% of millennials
using online banking for informational purposes will have improved finance
outcomes.

Tips and the role of
accountants

Where
millennials are more likely to have financial goals in place, it’s still vital
that they’re aware of what’s going on with their day-to-day cash flow. There are
lots of budgeting tools and apps that can help utilise funds and for dividing
money between essentials, wants and for the future.

Emergency
funds are one of the best things you can do for yourself financially, no matter
how old or young you are. As we’ve said in previous posts you should aim to
build one that contains at least 3 months worth of essential living expenses.

It’s no
secret that millennials are in a lot of debt. From university feeds to rising
living costs and wages that don’t match, there’s a chance that millennials you
know will be in significant debt.

“Nearly 30% of millennials are overdrawing on their debit accounts”

A survey conducted by YouGov discovered that a
fifth of adults aged 25-34 spent over 60% of their income on the day they
received it. By learning to manage finances and knowing which products/services
will save them money accountants can bring greater understanding surrounding personal
finance.

With the rise of accounting technology, accountants are able to instantly see the finances of their clients. These tools also provide the opportunity to send real-time advice to clients before they find themselves in financial trouble.